Borrowers with an offset mortgage who link their savings to their loan have earned £1.4 billion more than those who simply put the cash into a savings account, according to new research from first direct.
Around 460,000 people in the UK have an offset mortgage, and over the past two years it’s estimated they ‘earned’ £1.9 billion in interest savings. Putting those savings into a best buy savings account would have earned £534 million in net interest.
The average offset savings balance has risen by 19 per cent (from £27,822 in 2009 to £33,243 in 2011) compared to a 2.5 per cent rise in the average gross loan balance in the same period (from £127,058 to £130,186). This means the average offset saving balance is now 26 per cent of the mortgage balance compared with 22 per cent in Q2 2009 as offsetters seek to benefit from higher savings rates.
Richard Tolchard, senior mortgage product manager at first direct, commented: “An offset mortgage is an excellent option for those borrowers looking to benefit from a higher rate for their savings. While many UK savers are currently seeing the value of their savings eaten up by inflation as well as being taxed on the interest earned on these savings, no tax applies if they use their funds to reduce their mortgage balance. As well as helping them to pay down their outstanding loan, offsets can help shelter savers from the effects of high inflation on their hard earned savings pots.
“In the current interest rate environment mortgage borrowers could have saved thousands more with an offset in the last couple of years, even if they had diligently been seeking out the best buy savings rates.”
